Thursday, February 5, 2009

How to guarantee your job in a Spanish bank

The Spanish banks always looked vulnerable to me. I have criticised Santander several times on this blog.

But this story deserves more coverage. Ibex Salad – a blog about the Spanish stock market and olive oil business – is reporting that banks are taking the property they are repossessing from bankrupt property developers and selling it to their own staff at a 35 percent discount and with 100% percent financing.

This is called loss deferral. That is what distressed banks do.

But Ibex Salad makes the obvious point. For employees this has one side benefit – staff who borrow from the bank are more likely to keep their job. Probably a good deal for the bank staff – even if they are paying slightly over the odds.

6 comments:

Why loss deferral? I assume the discount is in relation to market price. If the property is valued in its books over the selling price, then the loss is instantly recognized, isn´t it? And if it isn´t there is in fact a gain. And given that the buyer has a job (as long as SAN wants him to at least) and that the discount provides a cushion so that the collateral is good even with 100% financing, the mortgage shouldn´t be too risky. This operations won´t make much money for the bank, but they serve to unload risk and real state.

Don't assume Spanish mortgages are limited recourse. I haven't looked it up but they are almost certainly full recourse. This is common in Europe.

As long as the employees involved have assets, Santander is fine. On top of that, if they are fired and can then no longer afford the mortgage Santander will have their redundancy pay as additional collateral. Bloody clever really.

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